It's Official: Canada Fell Into Recession In First Half Of 2015

It's official: Canada fell into recession in the first half of the year.

Statistics Canada reported Tuesday that Canadian GDP fell 0.5 per cent at an annualized rate in the second quarter of the year, following a 0.8 per cent decline in the first quarter. Two consecutive quarters of contraction are generally seen as the technical definition of a recession.

But StatsCan's numbers also showed a surprisingly large bounce-back in GDP in June, up 0.5 per cent on the month, suggesting the country entered the third quarter of 2015 on a stronger economic footing.

There was no sign of a bounce-back in the oil industry. The oil, gas and mining sector saw output fall a significant 4.9 per cent in June compared to the same month a year earlier. Industries supporting oil extraction saw output collapse by 18 per cent.

But the recession was felt outside the oil industry as well, with construction dropping by 3.1 per cent in June from a year earlier, and manufacturing output dropping 1.7 per cent.

Exports were a bright spot in the second quarter, adding to growth after being a drag on it in the previous two quarters.

A considerable amount of growth in the quarter was found in household consumption at a time when interest rates remained low.

Statistics Canada found that household consumption rose by 0.6 per cent in the second quarter, which followed a 0.1-per-cent gain in the first three months of the year. The second-quarter increase was led by 1.5-per-cent growth in transport prices.

StatsCan also revised downwards Canada's performance in the first quarter of 2015. It now says GDP shrank at a 0.8 per cent annual pace. It had earlier reported the economy shrank at a 0.6 per cent pace that quarter.

But many economists argue Canada is in a "technical recession" — the economy meets the definition of a recession, but is missing some of the hallmarks of an actual recession. For instance, overall employment levels have been growing in Canada, despite job losses in western provinces.

That led CIBC economist Avery Shenfeld to conclude that Canada is "not yet [in] a recession."

In a client note Tuesday, Shenfeld said the first half of the year was "as weak as advertised" but the strong performance in June suggests that the third quarter of the year "will provide a breather as the economy, at least for a quarter, returns to growth."

The new batch of data is likely to add fuel to the heated, ongoing political debate over how best to respond to the weakened economy as parties battle for support ahead of the Oct. 19 federal election.

It is also expected to intensify the economic argument over the severity of the technical recession. Prime Minister Stephen Harper has side-stepped campaign-trail questions about whether Canada was in recession this year. On Monday, he also declined to define a recession when asked about it.

"I think it's more important to describe the reality of the situation rather than to have labels,'' said Harper, whose Conservative party has pinned its re-election hopes on its economic record.

The hobbled economy has so far shaped up to be the primary issue of the campaign — and Harper's opponents have used his record as a bull's-eye for their attacks.

Harper has reiterated a stay-the-course mantra, insisting the country must ride out external economic and market turbulence whipped up in places like China. He has argued the only domestic weakness has been in the energy sector, which has suffered from the steep slide in global oil prices.

The Tory leader has frequently cited forecasts that predict the economy will rebound in the second half of the year, including a projection by the Bank of Canada. The central bank, however, has downgraded its projections for 2015 and cut its trendsetting interest rate twice this year to cushion the blow of low crude prices.